Micropayments now ready to slash price of online news

Using online currencies like Bitcoin to make small payments could make news stories and songs a steal

WHEN he bought the Washington Post for $250 million last week, Jeff Bezos wrote to the newspaper's staff: "The internet is transforming almost every element of the news business." As the founder of Amazon well knows, that also goes for several other industries, from books to movies to music.

And now they may have to shift again, thanks to a raft of technologies that promise to upend the way we make small purchases online.

Traditional payment systems like Visa and MasterCard charge merchants a fee for every sale they make using their network. When a customer wants to pay for something small – a song or an app, for example – the fee can be such a large percentage of the cost of the item that it can discourage the merchant from making the transaction at all.

Big companies like Apple can get around this by cutting deals with payment processors for the huge volumes of songs sold on iTunes, for example. Newspapers, magazines and entertainment sites like Netflix and Hulu charge monthly subscription rates, but the price stays the same no matter how much – or little – someone reads or watches.

"From the consumers' perspective they are paying up front, providing the vendor with a line of credit," says Jeffrey Green, an emerging technologies specialist for the Mercator Advisory Group, which advises firms in the payments industry.

The digital currency Bitcoin could help. Coinbase, a digital wallet and platform that lets anyone with a US bank account buy and trade Bitcoin currency, announced last week that it is now supporting instant, free micropayments, in Bitcoins, with none of these drawbacks. In a blog post, Coinbase CEO and founder Brian Armstrong wrote that Coinbase would start handling small – typically under $1 – Bitcoin transactions "off-blockchain". That means each one wouldn't have to go through the algorithmic validation process across the whole Bitcoin network, which can take a few minutes or more, but would instead be sent directly between two Coinbase accounts and validated later.

These microtransactions could let users read the rest of a New York Times article for a few cents instead of signing up for a full monthly subscription, Armstrong wrote, or "pay for Wi-Fi internet metered by the minute (or second!) if you just need to check one email" or "support your favorite artists or coders with a tip".

Patrick Griffin of the payment software company OpenCoin says it's not Bitcoin itself, but the decentralised network of independent verification that it spawned that makes it so valuable. His firm's service, Ripple, allows users to make transactions through a peer-to-peer network that is essentially free – it charges around 1/1000th of a cent per transaction for security reasons, but then redistributes it within the network.

"The really big innovation with Bitcoin was not the currency, it's the network around it, the process by which those units are moved from one account to another," says Griffin. "There were virtual currencies that existed before Bitcoin, but they all required a central authority to move and confirm transactions."

Griffin says new models for charging to read newspapers are just the beginning. "Imagine paying a microtransaction for every web page you read," he says. "Imagine these systems are implemented into cars. You're driving down the highway... you can tip the guy ahead of you to move out of the way, and keep doing that all down the road."

This article appeared in print under the headline "Steal* this article"

A smaller paywall

The idea of a Bitcoin-based paywall is already out there. BitWall aims to give publishers more flexibility over how they charge for content, allowing for sales of daily, weekly or monthly subscriptions, or on a per-article basis.

Meanwhile, Flattr allows people to make donations to the creators of free online content. Users can set up a wallet that will accumulate money so that at some point in the future they are able to tip a blogger or an artist for their work.

Flattr wallets can be loaded with Bitcoins to avoid the problem of payment systems charging for transactions (see main story), or users can upload larger amounts, say $10, in one go.

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